The fastest-growing economy in Latin America brings a dynamism and an optimism to Peru's capital that did not exist in the 1980s and '90s. Still, poverty and the legacy of war linger.

Reporting from Lima, Peru — Lima was always gray. The Peruvian capital, for much of the year, had this overcast dullness; the sun rarely shone, it never rained, it was just damp and gray. Your hair didn't dry. Your clothes molded, literally, in the closet.

When I returned to Peru this month for the first time in 26 years, Lima was still damp and gray. That had not changed. But many other things had.

Peru has the fastest-growing economy in Latin America, having registered substantial growth nearly every year for a decade. Where that prosperity has touched, the change is remarkable. There is a dynamism, an optimism, that did not exist in the 1980s and '90s, periods of fratricidal guerrilla violence and divisive political turmoil.

At the same time, Peru continues to be beset by unresolved issues of poverty and the legacy of war.

When Francisco Pizarro founded Lima in 1535, making it the most important city in the Americas for decades, he located the "City of Kings" on Peru's central coast facing the Pacific Ocean. In more modern times, the road that hugs the sea was a disjointed, potholed mess. There was nothing attractive about the view or the experience.

But today, the road is smoother; a lovely chain of parks perches on the cliffs above. In the mornings in wealthy seaside districts such as Miraflores, Peruvians are in those parks, doing calisthenics and walking froufrou dogs.

That's the higher end of the income bracket. The tiny, white elite that always ruled Peru has only gotten richer. But in the last couple of decades, a middle class has emerged and moved solidly into business offices and government branches. Mestizo kids attend private schools and colleges where they never were before.

Miserable shantytowns once ringed Lima, clinging to caked-dirt hillsides, void of electricity or running water, the so-called pueblos jovenes, or young towns, of cardboard homes to thousands of people who fled the Andean countryside in a massive attempt to escape war and poverty in the 1970s, '80s and '90s.

Today many of the pueblos jovenes have metamorphosed into mini-cities with services and real buying power.

Los Olivos is one such place. No longer a slum, it is a vast lower-middle-class suburb, boasting the MegaPlaza (billed as one of the largest shopping malls in South America), gated neighborhoods, mammoth casinos and plastic surgery clinics.

At the 2,700-member Gold's Gym in Los Olivos, manager Edgar Nunez, 37, recalls what used to be and marvels at the change. "Today we have everything here — beauty parlors, car dealerships, schools," he said. "You don't even have to go to other parts of Lima anymore."

Which is not to say that the slums are gone. The number of people living in poverty has been dramatically reduced, but poverty remains entrenched — especially in the Andean highlands, the Amazon jungle, the rural south.

Violent protests, primarily by angry Aymara Indians, have raged for months in the mineral-rich region of Puno over what is essentially the failure of wealth to trickle down. Six people were killed during demonstrations last week.

There are other tensions as well. In contrast to the sleek malls and well-dressed people is a festering bitterness over the war, anger that bubbles up easily and treacherously at certain moments, like the June 5 presidential election that I was back in Lima to cover.

One candidate, Keiko Fujimori, is the daughter of the disgraced former president serving time in prison for corruption and human rights abuses committed by his forces in a zealous fight against leftist rebels. Her campaign attempted to scare voters into thinking that violence could return. Her opponent, the eventual victor, Ollanta Humala, worked hard to remind voters of the abuses of the Fujimori regime.

In the vote, memory, or the perversion of it, was fundamental.

Perhaps more than any country in the region, Peru has failed to come to terms with its recent past. An estimated 70,000 people were killed in the war unleashed when a fanatical Maoist organization called Shining Path terrorized the countryside and planted car bombs in the capital. It was eventually joined by another less radical but also deadly group, the Tupac Amaru Revolutionary Movement, which added to the campaign the taking of hostages that included journalists, politicians and diplomats.

A plan to build a Museum of Memory has languished amid disputes over how to remember the conflict. A monument erected in 2005 in Lima's Campo Marte, called the Eye that Weeps, pays homage to the dead; it has been vandalized, and the right wing has attempted to have it destroyed.

At issue: Some Peruvians object to including dead guerrillas among those remembered. A number of Shining Path rebels, or suspected sympathizers, were slain by Fujimori's forces after they were taken prisoner.

In defending the Eye that Weeps, Peru's Nobel laureate Mario Vargas Llosa wrote a few years ago that the war "did not leave innocents; we were all stained, by action or by omission."

"Only by recognizing this can we construct a dignified democracy, where it would be inconceivable to repeat the horrors that soiled our 1980s and '90s," he continued.

The monument is a large pillar-like stone, surrounded by thousands of small stones on which the names of the dead have been written, mostly by survivors. The dominant color, like the rest of Lima, is gray. And some of the names are fading.